Tuesday, April 01, 2014

An Interesting Way to Pay Off Your Student Loans - AKA "Your Credit Score Doesn't Matter"

Consider this lieutenants, economists, agents in the field, and chilllldren!

What if you did three simple things:

1.  Never bought a house because it's too risky
2.  Never bought an expensive car because you always paid cash
3.  Never took on any credit card debt, insisting to pay off the balance every month?

Why, you'd never have any reason to borrow money.  And since you'd never have any reason to borrow money...

your credit score wouldn't matter.


Kristophr said...

Nice April 1st post.

( Hint, wait a year after the GSL repayment before going banco. )

Anonymous said...

They check our credit scores when we apply for jobs or when we apply to rent an apartment. If you don't buy a home, I assume you're renting somewhere, and if you don't borrow money, you must have a good income to buy the things you need. Credit scores shouldn't matter to rental companies or employers, but they do.

Goober said...

It would, though.

Credit score impacts whether or not you can get approved for a rental home (or wheter you'll be required to put down a stupidly large damage deposit or pay higher rent), the rates you pay on car and renter's insurance.

Hell, some employers check credit scores as a condition precedent to hiring.

There's an entire industry out there making sure that you play by their rules, and they make it remarkably more difficult for you if you choose to skirt their system.

Pax Empyrean said...

I have never bought a house. Every car I have ever bought, I paid for up front. I pay for everything with a credit card, which is automatically paid off in full every month from my checking account. I have never missed a payment.

I have no idea what my credit score is.

Luke said...

Hi, Captain. I know you write in depth on the economics of going to college. I suspect you'd find this short econ paper on WHO should go to college (not just in what they should major), for the venture to be worthwhile.


"The numbers don't lie: College is a great investment for great students, a mediocre investment for mediocre students, and a bad investment for bad students.

This is seriously inflated by ability bias, but over half of the effect looks causal."

Taco Shack said...

I watched your video. In the end, you asked for a bankruptcy attorney to chime in with his two cents about using credit card debt to pay off student debt, and then discharging the debt in bankruptcy.

Well, I'm not an attorney. But I did ask an attorney that exact same question about six months ago. A girl I knew has crazy student debt and was looking for a way out so she consulted with an attorney. I tagged along to help her out and to keep from getting overwhelmed.

Anyway, based off of the our conversations, the problem with that solution is as follows.

When you declare bankruptcy, the judge will want to look at about six months to a year worth of bank statments, paychecks, etc. He is looking to make sure you aren't doing something like buying a fancy trip to Paris and London and Las Vegas for a fancy vacation, and then declaring bankruptcy a day later.

Those sort of expenses aren't dischargeable. Normal living expenses are dischargeable. But trying to game the system isn't.

And student loans are the same. So, if you had a $30,000 student debt, that you then paid off with a credit card, and then turned arround and declared bankruptcy, the judge would/could say that that $30,000 charge to the credit card was not dischargeable.*** He would probably allow any OTHER expenses that you had on the card, like gas and food and rent expenses.

But not the $30,000 charge to pay off the student loans.

***Now, it still might be better to have a $30,000 undischarged credit card debt, vs a $30,000 unpaid student loan. You MIGHT be able to bargin with the credit card company to pay of the debt for pennies on the dollar. Depending on the laws of the state, you MIGHT be able have the debt discharged after the statute of limitations expires, although this could be up to 10 years later.

Anonymous said...

Also, once you buy a house, your credit score no longer matters.

Tyler said...

This is terrible advice Cap.

If you are not buying a home you are going to have to rent. Where I rent (Calgary/Fort McMurray) the vacancy rate is less than 2%. I can't see any person having success finding a place to live with a credit score of 400 unless they find a sucker for a landlord.

As a Landloard I always do a credit check on potential tenants. Anything lower than 650 is a red flag and I will not rent to them as I don't want the tenant to default on their rent payments. That number might change if the rental market cools down but would you want to take that risk just to try and game the system.

As writing this I guess there is another option to live out of a motel/hotel however I'm guessing that would cost significantly more vs. monthly rent.

Jose Romero said...

Can a person set up a corporation and use that to get lines of credit and pay off the student loans? Can a person incorporate himself?? Just a thought!

Anonymous said...

I agree, Captain, it's better to save before you spend and pay cash and stay out of debt.

Anonymous said...

As a former landlord I would agree with Cappy. There are and will always be decent places to rent (and buy -owner financed) without needing a credit score. Plus, I found that the WORST tenants BY FAR were doctors; got to the point I stopped renting to them at all.

Father Thyme said...

Credit scores are a "money extraction" score. Yes, the score partially reflects your honesty and integrity, but it also reflects how plugged into the matrix you (and your wallet) are.

My father built our family's first and only house cash, never borrowed money for a car, and was never in debt. His credit score was so bad that he couldn't even get a credit card for convenience on a trip.

And mine went down when I started "hard-cancelling" accumulated cards. Less wallet exposure to the system, lower score.